There’s been a lot of discussion over the last year or so about the negotiability of Fannie Mae and Freddie Mac promissory notes. The banking industry has been trying to convince courts that these notes, which total about $7 trillion in commercial paper, are a negotiable instrument.

Why is this so important to the banking industry? The bottom line is that if banks can’t convince the courts that these types of notes are negotiable, then it will be a lot more difficult for them to foreclose on a home and this is what they fear.

The history of negotiability goes back even further into the history books – which trace it to the Florentines and Venetians in the 12th and 13th century.

Like the charlatan weavers who tried to persuade the emperor he was wearing beautiful new clothing in Hans Christian Andersen’s famous tale, banks have spun a wonderful story about the negotiability of these notes. But their argument has begun to wear thin and that has the banking industry very concerned. So concerned that they have started to lobby supreme courts around the country.

Our legal system has been discussing the negotiability of a note since the time the nation was formed.

Ironically, many of the terms and conditions in the standard Fannie Mae and Freddie Mac promissory note have been deemed non-negotiable in other types of instances, whether it’s car loans, consumer loans, solar panel loans, or hot water heater loans. Why should banks be any different?

A statue Niccolò Machiavelli sitting outside of the Uffizi, in Florence, Italy. Macchiavelli was a philospher, humanist and writer.

Since I started the South Florida Law Blog following the 2008 economic meltdown, I have made no secret of the fact that I am extremely critical of what can best be characterized as “America’s new crony capitalism.”

Crony capitalism occurs where certain industries have gained undue influence in the political process and thus have curried favor unjustly from the government. This undue influence distorts the market in favor of those that can afford favorable treatment (in other words, not you or me), and also creates a system where these industries are permitted to grow unfettered and unregulated, leading to practices such as the “Wall Street Rule” or “Too Big To Fail.”

Typically the type of influence that these corporations are able to obtain falls within the executive and legislative branches of the government. Whether we like it or not our system does allow for a certain amount of lobbying as well as campaign contributions in order to obtain such influence.

But not surprisingly, the ease with how these companies are able to obtain such influence has created a highly uneven playing field between the average tax payer and that of large multi-billion dollar industries, particularly banks.

But despite all of this crony capitalism, under no circumstances did I ever expect to see the banking industry blatantly attempt to try and corrupt the judicial branch which is typically the most neutral of the three branches of government when it comes to political influence and crony capitalism. Yet, in another “Too Big To Fail” twist, the Illinois Bankers Association (the “IBA”) has done just that.Continue reading→

According to the lawsuit, Barclays overstated the value of these loans in order to sell them off. It’s being alleged that these loans did not meet the underwriting standards of the mortgage securities that HSH Nordbank was buying into.Continue reading→